Financial Planners 101

Over the past few months, Ive noticed a growing trend in my mailboxreaders in search of financial planners or advisors. Or assistants. When taken in the messages context itpretty clear that not everyone means the same thing when they refer to a financial planneradvisorcoachassistanthelper!  

One reader wanted to know where to find a financial planner who would just take her paycheck, pay all of her bills, invest for her retirement, give her an allowance, balance her checkbook, and not charge her very much. (Wed all like one of those, right?)

Then, there are times when the context lets me know that a desperate reader looking for a financial plannerreally needs a reputable credit counseling organization that offers debt management.

And so, in an effort to clarify and perhaps educate, heres the low down on financial planners, advisors, coaches, and debt managers.

Financial planner

Anyone can call him or herself a financial planner. If you are ready to seek the services of a professional financial planner and to avoid an amateur, you want one who has earned the special credentials of Chartered Financial Consultant (ChFC) or Certified Financial Planner (CFP).

These professionals make a comprehensive analysis of your entire financial life, help you identify your goals, and then create an investment and insurance strategy to achieve those goals. Estate planning is often offered by a credentialed financial planner includes wills, trusts, tax planning, legacy, and end-of-life planning.

Generally, but not always, a professional financial planner will have minimum standards for new clients that have to do with net worth. If you are deeply in debt, a financial planner is likely to tell you to come back once you are out of debt.

Financial coach

A financial coach is an advisor who can help you reach your financial goals by teaching you money management skills, such as how to build savings or pay down debt. A financial coach can help improve your financial literacy, but cannot give you specific investment advice.

A coach can help you discover what drives your financial decisions, then help you develop a budget, create a healthier attitude that will lead to better money habits.

While there are no certifications, coursework, or licenses required for financial coaches or advisors, there are training programs run by the Association for Financial Counseling and Planning Education. You can find a coach at AFCPE.org.

Credit counselor

Theoretically, everyone can use the services of a financial planner at some point in their financial journey. But certainly not until one is free of credit card debt and other unsecured debt. A financial planner will want to see a consistent positive cash flow. Until you have achieved that level, there are other services that can help you.

If you are in a credit card mess and unable to keep up with even your minimum monthly payments, credit counseling may be the answer.

A qualified counseling organization, such as the National Federation for Credit Counseling (NFCC.org; 800 366-2732) goes to your creditors on your behalf to create a payment plan you can afford. You will receive education to make sure that when you are out of debt you do not return.

If you are in a credit card mess and unable to keep up with even your minimum monthly payments, credit counseling may be the answer.

A qualified counseling organization, such as the National Federation for Credit Counseling (NFCC.org; 800 366-2732) goes to your creditors on your behalf to create a payment plan you can afford. You will receive education to make sure that when you are out of debt you do not return.

Debt management

A debt management program (DPM) will be offered to you in conjunction with credit counseling when you qualify for that (it’s not difficult, but you need to be in some level of financial distress).

If you enter a DPM, instead of sending individual payments to your creditors each month, you will write one check each month to the counseling organization for all of your negotiated credit-card debt and the payments will be forwarded to your creditors accordingly.

For anyone who is desperately deep in unsecured debt (credit card debt it the biggie here) a highly reputable DPM will be your lifesaver. Get in touch with (NFCC.org 800 366-2732 immediately if not sooner. However, I would caution to shun (read: run away fast) from organizations advertising on radio, TV or otherwise, who make completely unreasonable promises. You cannot negotiate your credit card debt down to $1 and then just walk away!

No organization can help you do that. You do not get any special treatment if you are at least $10,000 in credit card debt. Confused? Unsure. Contact me with the name of the outfit. There are so many scam, schyster individuals and organizations out there preying on people they know are vulnerable, uneducated, needy (that’s how they got into debt in the first place) and they are ready, willing, and able to take them down even further!

Billing structures

Fee-only

Fee-only financial planners, coaches, and advisors are paid directly by you for the advice they give. Typically they charge by the hour, like an attorney, which will be open-ended and ongoing as long as you need or what this person’s service. But some will quote a flat fee for the project required, such as creating an Estate Plan.

The National Association of Personal  Financial Advisor offers a directory of fee-only planners by state at NAPFA.org (800 366-2732) or Garrett Planning Network, garrettplanningnetwork.com.

Fee-based

Fee-based planners, like a fee-only planner, charge for the advice and financial plan, but then also earn commissions on top of their fee if you purchase products recommended in the plan.

Commission-based

Commission-based planners make money from the products they sell. This type of planner does not charge for his or her time but has a big incentive for you to purchase the products they recommend. A commission-based earns a percentage of every financial product or service he or she sells to you. If you choose for this person to continue to manage your portfolio after you have purchased the products, you will pay a percentage of our portfolio’s net asset value (NAV) as a commission for the long haul. 

Set fee

Financial coaches generally charge a set fee, either by the hour or a set monthly amount, which should be negotiated upfront.

Credit counseling and debt management services are generally offered by non-profit organizations such as NFCC.org. You will pay a set-up fee of just a few dollars, then a monthly fee. Any set-up fee or monthly fee should be reasonable, usually defined as $50 or less, with monthly fees in the $25 range. The agency should be willing to waive all fees in cases of true hardship.


 

 

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  1. Terri says:

    Make sure to interview several financial planners. The one that I had used for 15 years moved out of state. I found a local planner with the same firm that sounded good on paper, but after several conversations; I could tell that her focus was on younger, working clients. I was referred to a different planner who answers questions in a way that I can understand. In addition he contacts me quarterly to ensure that my needs haven’t changed.

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